If they can't put him in jail for insider trading or knowing that his underlings were insider trading, then the Feds are just going to have to try and put Steve Cohen in jail for not knowing that his underlings were insider trading.
U.S. officials are investigating whether hedge-fund titan Steven A. Cohen purposely avoided learning about alleged criminal activity at his firm and, if so, whether that behavior could form an element of any charges against him, according to people familiar with the matter….
The potential strategy involves the legal theory known as "willful blindness," or "conscious avoidance." A classic example is the drug courier who takes pains to avoid learning the contents of his cargo. The theory has been used frequently in cases of white-collar crime by federal prosecutors in Manhattan. It expands the opportunities for prosecutors to prove a defendant knowingly committed a crime, lawyers say….
The government faces a looming deadline for some of the trading involving Mr. Cohen. A former SAC trader, Mathew Martoma, is facing criminal and civil charges of allegedly obtaining inside information in July 2008 about a drug trial from a doctor working on it, trading on the tips and advising Mr. Cohen to trade as well. SAC allegedly earned profits and avoided losses of about $276 million, according to prosecutors and regulators. The firm in March agreed to pay a $602 million settlement with the SEC related to the trading, in which it didn't admit or deny wrongdoing….
Some criminal defense lawyers believe that, without being able to put Mr. Martoma on the witness stand to testify about what his former boss may have known, the government is unlikely to file charges against Mr. Cohen before the July deadline.
But that is where the willful-blindness theory could come into play. If prosecutors can prove Mr. Cohen had reason to suspect he himself was involved in a crime and actively avoided learning the truth, they could still obtain a conviction, lawyers say.